FED is Selling Loans: Does it Own Them?

Editor’s Analysis: I am watching these stories about the Federal Reserve Selling Loans — including subprime loans that they can’t get much traction on. But what troubles me is that the Federal Reserve is never mentioned as the foreclosing party.

So do they own the loans or not? Based upon published reports, the inescapable conclusion (or at least question of fact in litigation) is whether some or all of the foreclosures are being prosecuting on behalf of entities (trusts) that no longer exist and which are not owed anything because they have been bought out by the Federal Reserve, which in turns probably has no rights to pursue homeowners, and therefore should not be claiming ownership over loans that it has no authority, legal or otherwise, to enforce.

• If the Fed is selling they must think they own them. But the Fed is never mentioned in foreclosures and nobody seems to be arguing in court that the Federal Reserve owns these loans, probably because the Federal Reserve doesn’t make it easy to find out which loans they are claiming to own, and thus which loans they could sell.
• If what they are really selling are the complex derivatives that are often used interchangeable with owning the loans, then they are stuck with the problem of whether those loans actually made it into the REMIC pools, a fact very much in contention in litigation started by both sides of the transaction — borrowers and the original investors.
• If the Fed is saying that they own all of the loans in the pool, that means they bought out the entire REMIC — a consequence of insurance contracts and credit default swaps bailed out by the Fed.
• How many of those pools, bought out by the Fed still exist? Many of the REMICS have filed papers with the SEC stating that they have no further reporting requirements which would imply that they have no assets, income or liabilities. 
• Does the Federal Reserve even know what it owns or is it just taking the word of the insurance companies, investment banks and intermediaries as to what was in those packages that were delivered to the Fed for 100 cents on the dollar?
• And who is foreclosing in the name of those pools when the pool investors have been paid off?
• And here is the kicker — if the pool investors were paid off (directly or indirectly) they were paid on contracts that expressly waived the right to subrogation; i.e., they waived the right to pursue homeowners on their mortgage debt.
• If the loans were not transferred into the pools, then these transactions are a sham.
• But they are a sham even if there was a transfer into the pools if the Fed acquired the loans via insurance and CDS contracts that waived subrogation. Remember the Fed bailed out AIG and other insurers so they could make good on insurance policies covering mortgage backed securities.
• They bailed out the investment Banks, not the investors. So if the Federal reserve gave out 100 cents on the dollar for the actual mortgage bonds that would mean that the investment banks were still holding the mortgage bonds for sale when the market collapsed. But that isn’t what happened. The bonds were sold forward, which means that the investors bought the bonds before there were any loans to put in the pool. So if the Federal reserve gave investment banks money, what were they buying?
• It seems more likely that the Federal Reserve was giving the investment banks money to make good on their counterparty liability in credit default swaps, which also have a provision that prevents the counterparty from exercising any right of subrogation or claims against homeowners.
• But if the Federal Reserve was funding insurance contracts and CDS then they didn’t have any ownership interest in the loans, so what are they selling?
• All these things and more raise the questions of fact that should allow homeowners to probe through discovery into the ornate securitization process that looks more and more like a sham itself. but the questions in foreclosure or quiet title look the same — whom did you pay, what did you pay, why did you pay, and when did you pay.
• Follow the money and it will literally take you home. Start with the COMBO Title and Securitization, then the Loan Level Accounting Analysis and then launch into discovery. What you find in discovery may well cast doubt on the origination of the loan transaction, the viability of the note and the viability of the mortgage.